ACG Business Analysis

Microcredit in Guatemala

ACG Business Analysis

2-14-2014

Marquette University Applied Global Business Learning Team

Mr. Brian Keogh

Ms. Kelsey Simkins

Ms. Alicia Hieb

Mr. Parker Johnston

Ms. Alice Ogles

Mr. Tor Peterson

Ms. Kara Stephens

Mr. Spencer Tielens

Ms. Charlotte Clarke

Faculty Advisors: Mr. John Peterson and Dr. Jason Meyler

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TABLE OF CONTENTS

I. Acknowledgements……………………………………………………………………………. 4

II. History of Acción Cultural Guatemalteca…………………………………………….. 5

III. Current Structure of ACG…………….…………………………………………………….. 6

IV. Programs and Services………….…………………………………………………………… 7

V. Explanation of Microcredit Program

a. Application process….………………………………………………………………….. 8

b. Structure of Loan and Payment Schedule………………………………………. 9

VI. Experiences of Women in the Program……………………………………………… 11

VII. Analysis of ACG………………………………………………………………………………. 13

VIII. Impact of ACG on Communities……………………………………………………….. 16

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The Marquette AGBL team recognizes that this experience would not have been possible without the support

from our devoted faculty, loyal supporters, and friends in Guatemala. We would like to thank our hosts in

Guatemala for allowing us into their homes and for welcoming us into their town with genuine hospitality and

kindness. We especially thank Betty and Carmen for opening their doors to our university and for helping us

get accustomed to the Guatemalan culture. We thank the indigenous Mayan people who allowed us to visit

their properties and homes and for sharing their unique stories. In addition, we thank the members of ACG

who allowed us to visit their headquarters and for sharing the story of their organization. We especially thank

Juan Carlos de León Ventura, José Luis Ixchop Us, Juan Carlos Lopez Chic, and Paula Castro Zacharías for

taking the time to answer our questions, which helped us gain a better understanding of ACG’s mission and

business model. We thank Marquette University for the substantial financial support that has been provided

to the Applied Global Business Learning program and for supporting the mission of this unique learning

opportunity. In addition, we thank Marquette faculty members John Peterson and Dr. Jason Meyler for

accompanying the team and for their dedicated guidance and assistance throughout the experience. Finally,

we would like to thank Sister Jan Gregorcich for her dedicated support to this particular program over the

years. We recognize the significance of her service throughout the time she spent in Guatemala, and we were

honored to have had her with us on this journey. We thank her for sharing her personal connections and for

organizing many of our visits while in Chinique and for making this experience both educational and

enjoyable for all.

I. Acknowledgements

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In 1989, ACG began under the name “Acción Cristiana Guatemalteca.” The organization arose in response

to the violence of the civil war (1960-1996) in Guatemala that left thousands of indigenous people dead

and displaced. The Guatemalan civil war marked a time of conflict, repression, and violence particularly

aimed at exterminating the Mayan people and culture. ACG arose as a necessity for the revitalization and

celebration of the Mayan culture that had been oppressed for over 30 years. Many indigenous people

developed strong ties to this organization even though, after the civil war, they were scattered throughout

the mountains of Guatemala. ACG continues to

work in these scattered indigenous communities

(see map to the right).

In 1996, ACG changed its name to “Acción

Cultural Guatemalteca” in order to receive official

recognition and become a legal entity. As a

religious organization, they were not able to obtain

legal recognition, so they shifted their focus to

emphasize cultural action and support for the

indigenous people. This change also allowed them

to receive financial support from foreign

organizations.

II. History of Acción Cultural Guatemalteca

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III. Current Structure of ACG

ACG is legally a nonprofit, so money brought in from

repaid loans stays within ACG and is not paid to

shareholders (for this reason ACG calls its payments

“apportes” or “supports” rather than “interest”). ACG

is an organization with legal recognition. They

currently have an official office and a formal structure

including a Board of Directors, employees, and

caretakers of their property. Juan Carlos de León

Ventura is currently the head of the Board of

Directors as well as the legal representative. As the

organization’s legal representative, he must be

continually recertified and go to classes to learn about

administration and accounting. The Vice President of

ACG is José Luis Ixchop Us and the speaker of the

board is a woman named Antonia who would also

take over the duties of the legal representative if (s)he

were unavailable. According to Guatemalan law, the

members of the Board of Directors must change every

two years. The same is true of the members of the

Oversight Committee and the Credit Committee.

Everyone on these committees can be reelected once,

meaning they can serve a maximum of 4 consecutive

years on each committee. Currently, there are 14

people who are members of ACG and serve on the

Board of Directors and various committees. This

group is made up of seven men and seven women. All

of the women have taken a turn on the Board of

Directors. ACG would like to expand membership to

20-25 and ask more women to be members; however,

they have found that many women decline the

opportunity. ACG’s central staff, including the

accountant, Juan Carlos Lopez Chic, the president,

Juan Carlos de León Ventura, and the Community

Project Facilitator, Paula Castro Zacharías, is paid a

monthly salary. The three facilitators in the outlying

communities, the assembly (all other members), and

the property maintenance person are also paid, but

on a daily or hourly basis for time worked.

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IV. Programs and Services

ACG is currently located in Santa Cruz del Quiché and

as well as being a microcredit finance institution, offers

many different programs and services to the indigenous

population. In the beginning, ACG worked with

children and adults who were physically or emotionally

injured during the war. Postwar, ACG has four main

programs that are focused on education, women,

community development, and human rights. They also

offer scholarships for students to go to school, help

families obtain their first animals as well as stoves, and

offer art classes and other services to people who are

attempting to reconstruct their lives after the civil war.

ACG decided to begin their microcredit program to

move towards a more self-sustaining model. They

specifically decided to focus on women because men

have other sources of receiving credit. ACG’s

microcredit program began in 2002 when they gave

pasture animals to indigenous women. The women

repaid this “loan” by giving one of the animal’s

offspring to a friend or neighbor. This program

successfully led into a microcredit finance program in

which ACG gives small loans to indigenous women with

very limited resources in order to help them become

self-sufficient. With these microcredit loans, the

women are able to buy animals, as well as create small

business or stores within their community. There are

currently 712 women receiving microcredit loans and

many women are no longer receiving microcredit loans

because they became self-sustaining after receiving

microcredit for many years. These microcredit

programs strengthen the position of women in society

as well as in their family so that they now have power

and a voice to participate in discussions of race and

classism. For the first time, women are able to handle

money instead of relying on their husbands.

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V. Explanation of Microcredit Program

ACG has a standard application process for women

seeking to receive a loan. First, ACG hosts a meeting to

present itself and explain to the women its loan

program and the application process. In order to

become eligible for credit, women must form groups of

at least five (there is no maximum). ACG has found

over the course of its program that individuals are

better at paying back the loans

if they are members of a group,

and the groups provide a

support system for the women

involved. Upon forming a

group, the women create a

name for their group, and one

of the women either volunteers

or is asked by ACG to be president of the group. The

president is generally the person ACG identifies as the

most capable member of the group, and she will make

sure the group understands the rules, necessity of

timely payments, and due dates. She will also serve in

some cases as a go between for ACG and the other

women in the group.

The second step in the application process is the

individual interviews, during which a representative of

ACG visits each woman’s home to complete the paper

application. The woman requesting the loan must

provide a copy of her electric bill, a letter of support,

and a copy of her DPI (personal identification

document). If the woman is not literate and does not

have someone to read ACG’s application for her, the

facilitator from ACG will read the form and fill it out

with the applicant’s verbal responses. Important

information collected includes the following: details of

individual and family, characteristics of the home,

financial position, how the woman will use the loan,

indicators of poverty, marital status, education status,

educational status of their children, languages they

speak, read and write, and where/how she will sell her

product. Additionally, the facilitator has the opportunity

to personally see the woman’s home and other

significant possessions such as animals, which act as

insurance of the woman’s ability to repay the loan.

Once all documents including applications, membership

forms/contracts, and group payment schedule are

approved and signed and the Q20 ($2.56) per person fee

is paid, the women are entered into ACG’s microcredit

program. Each woman is given a “calendar” depicting

the payment schedule for the group. They then pick up

their checks from ACG’s headquarters and cash them at

banks. Women in outlying communities receive the

money directly from the facilitator located there. Upon

receiving the check or cash, women are asked to sign a

credit receipt, which is then signed by the facilitator and

copied for the accountant.

The women are also given the opportunity after receiving

a loan to attend a one-day training at the ACG office.

During this training, the women learn how to care for

animals and get prescriptions for them. After the first

year of receiving a microcredit loan the women will not

take any more classes.

Stages of Loan Application Process

Step 1: Initial Consultation • ACG explain loan program.

Step 2: Home Interview • ACG analyzes ability to pay loans.

Step 3: Recipient Enters Program • Recipient signs forms and pays Q20 ($2.56) fee.

a. Application Process

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The basic Q500 ($64.10) loan given out to a woman is

repaid with Q600 ($76.92) at an interest rate of 20

percent over 12 months. Each month the women make

payments on their loans and in the case of the Q500

loan they pay Q65 of which Q42 go towards the

principle, Q8 go toward the support/interest on the

loan and Q15 go toward savings (see U.S. dollar

equivalents in the flow chart). These interest payments

of Q8 a month only add up to Q96 over the course of

the 12-month loan period, so the interest and principal

payments are adjusted in the last month so that the

interest adds up to Q100. All of these interest rates

remain the same regardless of the size of the loan.

Shown in the flowchart below is the basic working of

the minimum loan (Q500) given to an individual

woman in a group.

The average loan is Q2,500 ($320.51) and the maximum

limit is Q5,000 ($641.03). ACG would like to increase

the upper limit of loans offered, but currently it does not

have the capacity to do so. There are currently 712

participants in the program. On average, 10-15% have

irregular payments or late loans. Defaults are rare and

the last time a woman defaulted on her loan was 2009,

which ACG covered with reserve funds.

ACG charges 20% support/interest on its loans but the

women actually pay more than this per month in what

are called savings. ACG acts as a temporary bank for the

women with the dual purpose of securing collateral

should the woman, or one of the women in their

group, default on her loan. Overwhelmingly the

women indicated that they appreciated this function of

ACG as otherwise they are unable to put money aside for

future purchases. This means that by year-end they will

have Q180 in savings on a Q500 loan.

b. Structure of Loans and Payment Schedule

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Late payments of Q25 ($3.21) are charged, regardless

of the size of the loan or the woman’s particular

circumstances. Initially, there is a 15 day “grace

period,” but after this, a Q25 fine is added for each

additional month the payment is late.

If a woman continues to have an outstanding payment,

three separate steps take place in the following order:

the president of the loan group talks to the group as a

whole, the president talks to the individual, and ACG

talks to the individual. In the case of an individual

default in which the woman is unable to repay, her

animal(s) or other possessions may be repossessed to

pay back the loan. Because the group of women is

collectively responsible for the amount outstanding,

they must repay the amount due of the defaulting

group member. If not, ACG may take the savings of the

group. Therefore, the group may choose to repossess

the defaulting woman’s animal themselves to pay her

debt, or they may choose to have ACG repossess what

is necessary to pay back the loan. This is the procedure

in place, but it is very rare for women to default

completely on payments or for repossession to be

necessary.

Aenean eget urna

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VI. Experiences of Women in the Program

From the interviews we conducted, most women are

happy with ACG. Most women who participate in the

microcredit program hear about the program from

word of mouth, so they join after seeing the success of a

neighbor, relative, or friend. Several women

participated in a different microcredit program (we

believe it was called Genesis), but then switched to

ACG because they felt that the interest rates were fairer

and the other program did not have a savings aspect.

Many women especially appreciate the savings aspect

of ACG’s program because they know that it is a

reliable source of money at the end of the year.

The majority of the participants used their loans to

purchase animals. The animals and products such as

eggs, cheese, and milk serve a dual purpose in

providing a source of income for the women and

additional food for their families.

Several of the women we encountered did choose to

start small businesses with their loans. For example, a

woman from Cucabaj I was able to open a tienda or

small store after progressively buying and selling larger

animals, and a woman from Choacaman IV has chosen

to use her loan to successfully make and sell doll

clothes. Another woman we met with in the village of

Choacaman IV used her loan to start a tire store,

known in Guatemala as a pinchazo. As the loan

recipient, she was the one who made the initial

investment to purchase the necessary capital (i.e. the

store location and the stock of tires), but she left her

children in charge of the day-to-day operation of the

store. She worked as a manager with her children as

the employees. Initially, her husband was uninvolved

in the business; however, as time went on he began to

assist her with the administrative duties. The pinchazo

was located far from the family’s home, they had to

either take a bus or walk to get to the store. This

location, however, was chosen based on where the

woman thought it would receive the most business. She

expressed interest in opening another store closer to

her family’s home, but also seemed concern that a store

in this new location might be too far removed from

urban areas to do sufficient business. Her original store

was successful and she was grateful to ACG for

providing her with credit.

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Although the women appreciate the loans and what they have been able to do with them,

they still feel financially unstable at times because, for the most part, their income relies

on how much they can sell their animals for. They do not have a steady and reliable

source of income; their income is

very fickle and depends on a lot of

factors (i.e. size of the animal, the

market, etc.). Some women also

expressed a desire to take out larger

loans so they could expand their

business more, but they were fearful

of being able to repay on

time. Others who want to take out a

larger loan are unable to raise the collateral necessary for a large loan.

Typically, the women do not seem to be unable to pay back loans. The hardest months for

the women to make the loan payments are during the rainy season (June, July, and

August) because that is planting season and they have increased

expenses because of supplies they must buy. Another time that women

struggle to repay the loan when their children unexpectedly fall ill. In

difficult months, married women sometimes rely on their husbands to

help repay the loan. This type of shared finances seems common. Many

women said their husbands are involved with their loans, helping

women pay when they do not have the money (i.e. they have not been

able to sell an animal in time to make the payment) and occasionally

using their wives’ loans to make purchases. Women said their

husbands’ roles are generally mutual and supportive. Widows that we

interviewed said that it is especially

hard for them to make the payment

on time because they do not have a second income in the household. However, these widows

also appeared to experience the greatest autonomy.

When we asked what the women want most for their future, the overwhelming consensus

was that the women want a better future for their children. They want their children to be

educated and have a job with a salary; they do not want their children to suffer in adulthood

like they have struggled in childhood. We also asked what gave the women pride, and they

said that being able to pay for their children’s education and provide for their children is

their greatest source of pride. To the women it was clear that the loans from ACG provide a

way for them to do this.

Selling Price of Pasture Animals

Chicken Q100-150 ($12.80-19.20)

Small Sheep Q150 ($19.20)

Large Sheep Q300-350 ($38.46-44.90)

Young Calf Q1000-2000 ($128.21-256.41)

Food Staple Prices (quantity/price per day)

Corn (6 lbs) Q14.74 ($1.90)

Bean (1.5 lbs) Q7.50 ($0.96)

Rice (1 lb) Q3.50-5.00 ($0.45-0.65)

Total Q25.74-27.24 ($3.30-3.50)

Families can grow corn and beans part of the year, so around harvest time, they will have plenty. The rest of the year, they will have to buy corn and beans;

they always buy rice.

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VII. Analysis of ACG

During our time in Guatemala, we were fortunate

enough to attend a meeting held by ACG that explained

ACG, microcredit, and the loan process to local

women. At that meeting, approximately 20 women

were present, several of whom already have

outstanding loans from ACG. There were also a

handful of men. We noticed that at the meeting, ACG

facilitators used the feminine plural form of “we”

(nosotras), which refers specifically to women. Also of

note was that after ACG’s presentation only men asked

questions. This meeting, in addition to our visits to the

ACG headquarters, enabled us to better understand

how the information of the program is communicated

to interested applicants.

Women who decide to join the program take a class

sponsored by ACG that explains relevant topics, such

as interest payments, caring for livestock, how to buy

medication for livestock, and overall what the women

are getting themselves into. We believe that the classes

are necessary, as many women in the program have

little to no education and perhaps do not fully

understand the commitment and consequences

involved with taking out these loans. From the

numbers we were able to gather, 14% of the loan

recipients will not return to the program after a year

and 10-15% have irregular payments or late loans.

Loans are usually never missed more than 3-4 months.

ACG does occasionally have to repossess the animals or

personal belonging of women who cannot pay back

their loans. The repossession rate is usually between 0-

2 cases per year out of the more than 400 women who

received loans annually.

In 2009, ACG did have to use some of its reserve funds

to cover defaulted loans (this has not occurred in the

years since). After this time, ACG stopped working with

women who were unable to pay back loans, mostly

women from urban areas. ACG’s model of microcredit

seemed to be far less successful and impactful in urban

areas because women in those areas tend to be renters.

Being renters means they have less collateral because

they don’t own homes, and they are more likely to move

causing ACG to lose track of them. We wonder if women

in urban areas would still have a greater level of social

mobility. If they could acquire funds, it seems more

likely that women in urban areas would have success

with a more diversified spread of projects as urban areas

offer a larger population that can support a wider variety

of small stores and other businesses. Still, ACG has

ceased offering loans in urban areas.

We also believe that the classes are important because

they seek to educate the women about the commitment

they are making and give them the tools to be successful.

However, the classes stop after the first year in the

program. We believe it could be beneficial to continue

offering classes that broaden and diversify the skills of

the women receiving loans. Traditionally, indigenous

women weave trensas (braids), which they can sell for

Q2 ($0.26) per roll (they can make 2-3 rolls a day). The

women interviewed said they have not considered

investing in this skill because they do not know how to

make hats or other finished products made from the

trensas. They were open to learning, so if ACG offered

classes to teach new artisan or business skills, they may

create other opportunities for women to use their loans

beyond raising pasture animals, which is currently the

norm.

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While many of the women receiving loans indicated that they appreciate the savings program, we noticed that these

women are not collecting large amounts of savings or capital to be reinvested. When asked about banking, the women

indicated that they do not use banks as most money is spent as soon it is received. Likewise, most women indicated that

the savings received from ACG at the end of the year is used to meet additional family needs, rather than reinvested in

their business venture.

ACG requires that women take out loans as part of a group of five or more because this creates a social pressure to

continually maintain loan payments. From our perspective, group loans are riskier in the sense that if one member is

unable to repay her monthly payment, the rest of the group is accountable and must repay or face a penalty. To us, this

joint and several liability increases the individual risk; however, the women we interviewed seemed to believe the group

model works well. When we asked the women if they worried about group members not paying back their portion of the

loan, the resounding answer was that the women in the groups trust each other and will do whatever it takes to repay the

loan on time. This is partially the case because women will only form groups with others that they know well and trust.

This bond of trust within a group has become part of ACG’s assurance that applicants will be able to pay back a loan.

Additionally, the women said that being a part of a group is a source of pride for them and offers a great deal of value in

and of itself.

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From our observations, we deem that ACG is dedicated

organization with strong management and checks and

balances. The testimonies of the women demonstrated

their contentment with the program (many have been

a part of the program for several years). In developing

countries such as Guatemala, microcredit is sometimes

viewed with suspicion. The women we interviewed are

satisfied with the terms ACG has offered them,

especially because they have heard that interest is

much higher elsewhere.

One area that we believe could be improved is how

records are backed-up. Currently, all the loan

information is in paper-form and organized by Paula.

Some of the records are scanned, but for the most part

the records are only stored in files on a shelf. We

worry that the records would be lost if there were a

fire, a flood, earthquake, burglary, etc. We suggested to

ACG using an online backup system such as Mozy.com.

Our group will continue to follow up with them to

make this a reality.

Aside from this challenge, we were impressed with the

system ACG has set up for its microcredit program.

The organization has a good, trustworthy reputation

within the communities in which it works, and the

management team is strong and very involved in all of

ACG’s functions. We do believe that ACG could

develop a more detailed evaluation of its clients’

business models. From our perspective, part of the

loan application process should include ensuring that

the women receiving loans have an accurate

understanding of the financial costs of starting and

running their business (e.g. initial purchase price of an

animal, cost of its maintenance in food and medicine,

etc.) and have reasonable evidence that this business

will be profitable (e.g. final selling price for the animal

will be greater than costs). We are also concerned that

ACG relies heavily upon donations, making it

especially susceptible to hardships during economic

downturns; however, the success of the microcredit

program does seem to be moving ACG towards self-

sustainability.

Overall, one of the greatest strengths we see in ACG is

its success in living out its goal of empowering women.

We were impressed that half of the women serving on

the board or committees of ACG are women. We were

also impressed by the work of Paula as a facilitator.

Involving indigenous women in the leadership of ACG

and day-to-day functioning of the microcredit program

demonstrates ACG’s commitment to its mission.

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VIII. Impact on Communities

supportive of this role as it removes the burden from

them to be the sole provider for the family.

Additionally, ACG’s microcredit program is forging

community among women in its loan program. Several

of the women identified the pride they feel in being

part of a group of women as one of the most significant

benefits of the program.

Overall, ACG’s microcredit program reflects the holistic

goals of the organization in that it encompasses more

than just providing loans. The program provides a

means for women to play a more active role in the

finances and decisions of their families, encourages

savings, and prompts women to organize themselves.

In 2013, ACG hosted a celebration to recognize the

women receiving loans for their successes. Actions

such as this demonstrate ACG’s genuine commitment

to empowering women by offering them a measure of

financial independence.

During the initial meeting with ACG staff, they

articulated a twofold purpose behind the women’s

microcredit program: they hope that the interest from

microcredit loan program will move ACG toward

sustainability and that the program will empower

women. The second goal of empowering women is

being met on some levels, but has not reached its fully

desired potential. Women receiving loans have not

seen social change at the community level, as

community leadership is still dominated by men.

However, they have seen changes in their positions

within their own families. Typically, it is difficult for

women, particularly rural women without collateral, to

get loans from a bank. By giving women access to

money, ACG has helped give them a greater voice

within their own households. The women receiving

loans feel that they are now more equal partners with

their husbands because they are also able to contribute

income to the family. Their husbands are generally